Equity Release – is it right for you?

J Finance Equity Release

Equity release

For homeowners of a certain age, equity release sounds like the perfect solution to get the most from retirement, but is it really that simple?

What is it?

The purpose of equity release is to allow those over the age of 55 to take some of the value of their property and use it to fund their retirement, without having to move out of a beloved family home. It offers a chance for those with little in the way of pension funds to access cash to make their retirement more affordable. Others may choose to use it to release money for extra luxuries during retirement – or even to help a child get a foot on the property ladder. It can also be used to fund care in your own home, if that is something you need.

What products are available?

There are two main equity release products:

  • A lifetime mortgage: This allows the homeowner to take out a mortgage on the property, while still keeping ownership of it. You can choose to either make repayments during your lifetime or let the interest roll up and be paid when you die, or should you move into a care home. You can also protect some of the value of your home to provide an inheritance for children or other family members. A lifetime mortgage is the more common product taken up by homeowners, but because the interest continues to accrue, it is better to consider this later in retirement, rather than when you still have another 30 years of retirement to look forward to!
  • Home reversion: In this instance the homeowner sells all or part of their home to the product provider in return for a lump sum or regular payments.  Once the deal goes through, you can live in the property rent-free as long as it is insured and maintained. A percentage of the value can be ring fenced for inheritance purposes. At the end of the plan, the property will be sold and the proceeds shared between the product provider and any inheritors.

So what are some of the pros and cons of these schemes?

Pros

  • You can stay in your own home, without the stress and expense of moving.
  • Your monthly outgoing won’t increase – if you are living on a pension, keeping your expenses low is going to be a priority.
  • You can choose how you use the extra money – whether it helps to fund a once-in-a-lifetime holiday, helps your children onto the property ladder, or just enables you have a more comfortable lifestyle during your retirement.
  • You can take out money as and when you need it – some products allow you to ‘drawdown’, which means you only take out the money, as you need it, so lessening the amount of interest you owe.

Cons

  • Your family may end up with less inheritance. When you die or the house is sold, they will receive a smaller percentage of the profits.
  • You may miss out on the benefits of house price rises. If you sell part or your entire home to a policy provider, your family won’t benefit from any house price rises that happen in the future.
  • Interest rates can add up. Once the house is sold, there may not be much left for your family to inherit. A reputable provider should guarantee that you would never owe more than the house is sold for.

Choosing the right option for you is vital to safeguard not only your retirement, but also your family’s future. For some people, opting to downsize may be preferable. This is why it is essential to seek advice from a reputable and independent financial adviser, who can help you make the right decision.

Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, without obligation, please contact us on 01635 521 300 or contact@jfinance.co.uk.

EQUITY RELEASE CAN AFFECT THE FUTURE INHERITANCE OF YOUR BENEFICIARIES, NOT TO MENTION YOUR OWN FINANCES. THEREFORE, IT IS IMPORTANT THAT BEST ADVICE IS SOUGHT DUE TO THE COMPLEXITY AND VARIATIONS BETWEEN ALL EQUITY RELEASE SCHEMES.